# Method of Net Present Value (NPV)

The method of Net Present Value (NPV) is one of the most common, widely-used methods and one of the most important way upon which the decision-making tree will be displayed later.

It is important to identify the lifetime of the project and the cash flow during the years of the project from its the beginning to the end of the project’s life time.

To calculate the equation by the current value, one must specify the discount rate, which is given by the following equation:

 Year Discount Rate Net Cash Flow Net Present Value 0 1.0 -51785 -51785.00 1 0.909 20000 18181.80 2 0.826 20000 16528.80 3 0.7513 20000 0015026.20 4 0.683 20000 13659.00 NPV 11610.80
 Table 3.6 Net present value calculation

where n is the number of years, and D is the discount rate that is equal to the value of the interest rate.

The following example illustrates the NPV calculation in the suit, in which the imposition of the discount rate is equal to 10%.

As an example, calculating the net present value is shown in Table (3.6).